Wednesday, 5 November 2014

Modi govt needs to fast-track power sector reforms

The Modi government needs to fast-forward power sector reforms by purposefully putting paid to mounting distribution losses of state utilities pan-India with clearcut policy initiatives and follow-through action. The poor performance of electricity distribution companies (discoms) in states like Uttar Pradesh and Tamil Nadu poses systemic risks, hampers quality supply and jacks up the power infrastructure deficit. And the Centre needs to invoke specific sections in the Electricity Act, 2003 to speedily transform the situation on the ground. Reports say that the Centre is seeking instead to amend the Electricity Act, by demerging ‘carriage from content’ so as to have separate licences for the wire business and the actual supply of electricity, to bring about greater transparency in the whole process.

However, the marginal utility of the legislative changes now proposed is questionable. The fact of the matter is that several state governments have done well, using extant provisions in the 2003 Act to overhaul power utility finances, including by separating feeders for agricultural and domestic supply in rural areas. The Act also empowers the Centre, or specifically the Central Electricity Authority, to direct and advise state power utilities to rationalise crosssubsidies and follow norms as per the national tariff policy. Besides, sustainable utility bottomlines would incentivise “open-access” and reform the market for power, with multiple suppliers competing for custom, with adequate line capacity in place. The fact remains that openended subsidies, giveaways and moribund utility finances really make no sense.

Ratings by CARE show discoms in UP as the worst-performing, with those in TN close behind. Aggregate technical and commercial (ATC) losses, euphemism for plain theft of power, are a massive 40% in UP. Predictably, the cross-subsidy levels there are sky-high. Reckless populism is perverse incentive to steal and overdraw power. Instead, states need to strive to deliver quality power at competitive rates to shore up industry and services.